Avondale Real Estate Capital By Jason Jogia
As the previous Director and Group Lead for the Prairies in Scotiabank’s Real Estate Banking group, my real estate lending portfolio had plateaued since the Alberta recession began a year ago. The price of oil had just hit a new low on the NYMEX and layoffs were rampant across the province. It was increasingly difficult to balance the constraints of pursuing new business while maintaining a strong relationship with my existing clients. However, fundamentally, I still believed that there were still opportunities out there to be uncovered.
Conceptualizing the Opportunity
My next meeting was with Carl Diodati and Anthony Giuffre, the founders of Avenue Living. Ten years earlier, they established the platform to successfully build a billion dollar portfolio of multi-family rental apartments in yield-rich secondary cities and towns across Western Canada. They acquired property where their peers did not; where capital was hesitant to follow, and created a large scale operating platform to own and manage over 6,000 apartment suites. I was intimately familiar with their business strategy, as I had been instrumental in demonstrating to the bank that these contrarian entrepreneurs had a stable, sustainable business model built on maximizing in-place cashflows, not just relying on market driven capital growth. By reflex and per usual, I asked “How are things?” They responded “Great, acquisition opportunities are multiplying in the current business cycle, and it’s an opportune time to take advantage of this market correction.” A seed was planted, and the idea of Avondale Real Estate Capital was conceived. We realized we could build on Avenue Living’s established management and operating platform to create a new real estate investment fund.
Avondale Real Estate Capital is a unique, second generation income trust, whose strategic advantage leverages the expertise and existing infrastructure of Avenue Living. Avondale invests in multi-residential and commercial real estate primarily focused in Alberta, Saskatchewan and Manitoba, and does so through equity, debt or debt/equity hybrid investments. The Avondale strategy is built on the core premise that there are real estate investments that do not attract the same levels of capital or liquidity as more conventional investments, specifically investments in (i) secondary and tertiary cities and towns, (ii) real estate that requires stabilization and (iii) development assets. This illiquidity creates an “island effect” where opportunities exhibiting rich yield potential exist, but are challenging for most investors to capitalize upon as they do not have the right management infrastructure or ability to attract capital to these smaller markets. These market opportunities combined with the support of Avenue Living’s infrastructure, open a window for a highly-specialized income trust like Avondale Real Estate Capital to achieve above average returns for investors, by balancing strong cash flowing assets with value creation assets.
Avondale Real Estate Capital’s investment philosophy is based on the following competitive advantages:
1) Understanding Value – Avondale emphasizes purchasing on value today driven by in-place cash flows, rather than general investor preferences or reliance on market appreciation. Once acquired, we understand how to optimize the levers to maximize asset values.
2) Infrastructure in place – Avondale achieves immediate economies of scale by leveraging Avenue Living’s existing property management infrastructure of 200+ full time staff across 15 centres in Western Canada.
3) Acquisition Sources – Leveraging the Avenue Living reputation and presence in target markets allows Avondale to access multiple origination sources to access the best acquisition opportunities.
4) Financing Capabilities – Avondale’s founders leverage their deep experience, knowledge, industry relationships, and financial covenant to access financing solutions and optimize capital structures for acquisitions.
5) Size and Scale – By consolidating assets in fragmented secondary markets, Avondale is building portfolios which will support strong liquidity options (e.g. portfolio sale, merger, IPO opportunities etc.).
The Appeal of Real Estate
As an investment vehicle, Avondale provides investors with an opportunity to diversify their portfolios with exposure in niche real estate markets in Western Canada. High net worth investors have always understood that real estate is an attractive investment; often described as a smart, safe haven because it acts as a hybrid between a stock and a bond. Real estate investments have the income characteristics of a bond, and the growth characteristics of equities. For the past 20 years, Capgemini, one of the largest international consulting firms, has published the World Wealth Report in an effort to disseminate how high net worth individuals (HNWI) invest. According to their research, in 2016, excluding principal residences, HNWIs worldwide allocated more than 17% of their portfolios directly to Real Estate. MSCI, an independent provider of research-driven insights and tools for institutional investors, has shown that Canadian fund level Real Estate investments have outperformed bond and equity portfolios for the last ten years, while remaining uncorrelated to market listed investments.
Building Upon Success
Avondale Real Estate Capital was launched in October 2016. Building Avondale has spurred a significant change in pace and perspective; to view the current economic environment as an ocean of calculated, strategic opportunity versus a cavity of risk. Our seasoned team are experienced in producing high returns while mitigating risk, especially in the current investment environment.
We are progressing rapidly on both fronts of constructing our portfolio and attracting the capital to do so. Our ability to widen our capital sources to the broader market continues to be crucial in building Avondale’s foundations.